The Corner

Still Digging

Writing in the Daily Telegraph, Jeff Randall concludes that it’s all over for the euro (at least as it currently stands). This extract gives a flavor:

On current form, Greece will be paying nearly 10 per cent of its GDP in interest by 2015. Portugal’s 10-year borrowing costs are close to an unsustainable 7 per cent and would be even higher were it not for market manipulation by the European Central Bank. And Spain is sitting on 700,000 unsold homes, 20 per cent unemployment and a 33 per cent deterioration in competitiveness against Germany since the euro was formed.

Yes, the system is working a treat. No luck required, just more money. But from where will it come? The bail-out fund of 750 billion euros, cobbled together by the European Union and IMF, will not be enough. It may buy time, allowing Athens, Lisbon and Madrid to play the wheel for longer than they should, but their financial attrition grinds on.

Of the six eurozone countries that still have triple-A credit ratings – Austria, Finland, France, Germany, Luxembourg and the Netherlands – only one really matters: Germany. As the EU’s economic powerhouse (GDP growth was 3.6 per cent in 2010), it has become the lender of last resort. So far, Berlin has paid up, but 62 per cent of Germans now oppose further rescue packages for EU losers. Faced with choosing between Europe’s olive belt and her own electorate, Chancellor Angela Merkel will turn off the aid tap….

… there is no get-out-of-jail card. As the Bank of England’s governor explained this week, eurozone countries that binged on cheap money and self-indulgent pay awards must face up to improving competitiveness: “But because they are part of a monetary union and so do not have their own currency, they can do so only through outright falls in nominal wages. And to force that adjustment, unemployment has had to rise very sharply, compounding the impact on living standards.”

But will Merkel really turn off that tap? Not yet, I suspect. Merkel is not, of course, Sarkozy, but comments from the French president (speaking in Davos) give a sense of just how determined the EU’s political class is to rally behind its weird, misbegotten scrip: 

 “To imagine that we might pull out shows a complete misunderstanding of the European psychology. It has to do with our identities as Europeans.”  

Actually Nicolas, I’d be very surprised if most “Europeans” see Brussels’s shoddy and irresponsibly speculative single currency as having anything at all to do with their identities. That Sarkozy can say such a thing shows the extent of the problem that the EU’s elite poses for the unfortunate inhabitants of the eurozone.  

It’s hard to see how this can end well.


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